'Virtual Credit Cards Offer Users Real-Time Control, and Smarter Credit Discipline'

What exactly is the Fonepay Virtual Credit Card (VCC), and how does it work? What problem does it aim to solve in Nepal’s financial ecosystem?

 

The Fonepay VCC is Nepal’s first app-based virtual credit card designed and built entirely by Nepali developers. It offers a digital-first credit solution that may be unique in the region.

 

Despite decades of banking, Nepal has only about 320,000 active credit cards which is a surprisingly low figure. By comparison, around 5% of India’s population uses credit cards, while the number exceeds 60% in countries like the UK and the USA. A strong credit ecosystem is crucial for economic growth, and the lack of one in Nepal has held back financial inclusion.

 

One key reason credit cards have not taken off here is Nepal’s reliance on international payment networks which increases costs and limits access. Building local infrastructure reduces these costs and allows credit to reach a broader population. But the real bottleneck lies in underwriting. Banks have traditionally assessed credit risk based on income and collateral, and have focused on high-income individuals. In reality, it is actually low- and middle-income earners who stand to benefit the most from access to credit cards.

 

Another major hurdle is the cost, not just of underwriting, but of the technology required. This has limited credit card distribution in Nepal. It is not because of low demand; the system simply has not been built to serve the wider population. There is also a shift in customer behavior. Today’s customers expect banks to reach out to them. That means banks need to reduce onboarding costs and make credit access faster and more seamless. That is the model we are working to implement with our partner banks. Another pain point with traditional cards is the lack of control. Any changes, such as adjusting limits or usage settings, require formal bank requests, often with delayed response. With the VCC, users can manage everything like limits, alerts and usage, through their mobile banking app. That level of control builds confidence and trust.

 

Acceptance is another issue. Even if you get a credit card today, where can you actually use it? Physical card acceptance is still limited, mostly to big retailers, high-end restaurants, supermarkets like Bhat-Bhateni and major malls. Outside of these, usage is minimal. The Fonepay VCC, by contrast, is accepted by over 1.7 million merchants across the country. That is a significant advantage. Some worry that credit cards encourage impulsive spending. While that may be true to some extent, from a business and economic perspective, increased spending drives revenue and growth. Ultimately, the VCC benefits everyone—consumers, banks and businesses. It also contributes to the broader economy by boosting consumption and GDP.

 

Fonepay transformed QR payments in Nepal, then launched Foneloan and now the VCC. Do you believe this will be a game changer in Nepal?

 

Each of these is a different product. One key feature of a credit card, whether physical or virtual, is the interest-free period of at least 15 days, which many users do not fully understand or utilize. Foneloan, by contrast, is an EMI-based loan. You get cash directly in your account and the lender has no control or visibility into how that money is spent. The lender cannot easily assess whether your spending will impact your creditworthiness positively or negatively.

 

With a credit card, especially one that is digitally integrated into mobile banking focused on merchant use, spending is limited to specific locations. This provides transparency and allows banks to monitor user behavior. If there are signs of misuse, banks can respond quickly. This way, credit cards help build disciplined financial habits. One of our standout features is Merchant Category Code (MCC) control which lets users block certain spending categories, like casinos or high-risk retailers. This gives users control over where and how their credit is used. That helps form healthier habits.

 

This level of visibility and control is what sets the VCC apart from other digital lending products. We believe these features—real-time control, transparency and credit discipline—make it a true game changer. It has the potential to create a more dynamic and inclusive credit ecosystem, which, in turn, powers economic growth. Our target is to scale the VCC to at least 1 to 1.2 million users over the next two to three years. We are not starting with high credit limits. Actually, we are happy to begin with Rs 10,000 or Rs 20,000, especially for students and first-time users. It is about onboarding people into the formal credit system early. At these levels, the risk is minimal, and since much of the process is automated, banks face very little hassle in onboarding or monitoring.

 

Even if something goes wrong, the exposure is minimal. But once users demonstrate good behavior, the system can gradually increase their limits. Our approach is to help users grow along a credit ladder. There have been concerns over high delinquency rates, reportedly around 18 to 20%. But we believe that is not a problem with credit cards themselves; it is a problem with how users are selected. If credit is issued purely on collateral, it is flawed. This is because collateral only provides support, it does not generate cash flow. If the borrower has no capacity to repay, collateral is meaningless. That is why credit cards should be given to the segment who spend regularly, use digital payments and show consistent consumption patterns.

 

Plastic credit cards are limited and not so easy to get. Is eligibility any easier with your virtual credit card?

 

The core eligibility criteria, such as having an active account with the issuing bank, is still the same. Ultimately, the decision still lies with the bank. What we have changed is the experience of getting and using the card.

 

With traditional plastic credit cards, the process is often manual: visiting the bank, filling out forms, waiting for approval. There is also the risk of delayed billing and missed payments. In contrast, the Fonepay VCC offers a streamlined, app-based process. If you already have a functioning bank account, applying for a VCC from that same bank is quick and seamless. As long as your account is in good standing, you are unlikely to face any issues.

 

Repayments are fully automated. For example, if you have selected to pay back 10% or 100% of your dues, that amount is auto-deducted, no manual intervention required. As long as there is sufficient balance in your account, you can continue using interest-free credit smoothly. It is simple, yet powerful; and many users are still unaware of how convenient and beneficial this setup is.

 

Credit limits are determined based on your transaction history within your bank’s mobile app. The application takes seconds, and your virtual credit card is issued instantly. Imagine needing a credit card while shopping at Bhat-Bhateni; you can apply on the spot and start using it right away. That is the level of ease we have built. Behind the scenes, the underwriting and eligibility checks are still in place, just like with physical cards. What we have changed is the experience.

 

Most digital tools are used by younger people. Is your virtual credit card primarily targeted at them?

 

Yes, that is precisely the demographic we are aiming to engage with our virtual credit card. As I mentioned earlier, building credit behavior should be a gradual process; starting small and climbing the financial ladder over time. Ideally, this journey should begin during student life. For those in their Bachelor’s or Master’s programs, it is the right time to introduce credit discipline. That is when the learning begins, and over time, users can be guided toward more mature, responsible credit usage.

 

Our real goal is to capture users at that early stage and grow with them. This is not just about targeting Gen Z as a trendy marketing label, it is about identifying the life phase when credit use truly starts to matter, and making that entry point seamless. For us, that critical age range lies between 22 and 35. That is our core audience. Some users in this group have spending power, some do not. Whether or not this segment is profitable is not the point. What matters is that they are the right users to onboard and grow with over time. Our product and rollout strategy has been shaped around that insight.

 

Do virtual credit cards follow the same regulations as physical cards? What role does the bank play? And what about the security infrastructure?

 

Yes, virtual credit cards fall under the same regulatory framework as traditional plastic cards. There’s no legal distinction; rules governing physical credit cards also apply to virtual ones.

 

As for roles, people often ask what Fonepay does, and whether banks are just executing orders. The reality is more nuanced. Think of Forepay like Visa, MasterCard or UnionPay, we are a scheme provider. We set the standards, define rules, manage acceptance networks and offer the brand and infrastructure. However, when it comes to underwriting or credit decisions, Fonepay has no involvement. That responsibility lies solely with the bank. The bank decides who gets a card, how much credit is granted and under what terms. Fonepay plays two key roles. First, as a scheme provider, we define rules and manage the acceptance network. Second, as a technology provider, we build and maintain the infrastructure required for card issuance.

 

Traditionally, issuing credit cards required banks to invest heavily in infrastructure—buying switches, card management systems and more. This upfront capital expenditure, often amounting to Rs 100–150 million, was a major barrier to scale. We addressed this by building the infrastructure ourselves and offering it to banks on a revenue-sharing model. Banks now pay per card issued, converting large capital expenditures into manageable operating expenses. This makes credit cards far more accessible for banks to offer.

 

On the security front, there are two primary environments. One is Card Present (CP) where users tap or scan a card physically at a terminal, and the other is Card Not Present (CNP), where you enter card details online to complete a transaction. Generally, the CNP environment carries higher fraud risks, as transactions can occur using stolen card details without requiring further identity verification. The advantage of Fonepay’s system is that, for now, all virtual credit card transactions occur in a CP environment. Users are physically present and scan QR codes to complete payments. This reduces the risk of fraud and enhances transactional security.

 

Since our VCC is embedded within users’ mobile banking app, its security is tied directly to their mobile banking credentials. If the app is secure, so is the VCC. We have processed over 1.2 to 1.3 million daily QR-based transactions so far, and we have not seen any fraud originating from this ecosystem. The VCC does not introduce additional risk; it is simply another payment option within the mobile banking app, replacing the need to select a linked bank account. Because it's bundled with mobile banking, all existing mobile security measures apply. There is no need for a separate security layer.

 

That said, credit risk still exists—not from a technical standpoint, but from a behavioral one. Users must be educated on how to use credit responsibly. Awareness and financial discipline are key to preventing misuse, and that is where ongoing user education plays a crucial role.

 

How has the market reception been so far? How many banks are currently enrolled in the system?

 

The response has been very encouraging. Five banks are already live, three more have completed technical integration and are in the testing phase, and two others are in advanced negotiations. Daily transactions via the VCC currently total around Rs 4 million, and outstanding credit stands at approximately Rs 800 to 900 million. Since launching with Citizens Bank, we have added over 4,000 new users in just the last three to four months, bringing the total user base to more than 10,000.